Abbey launches new market-leading credit card

The Bank of England base rate may be at its lowest level in history, but as many credit card holders know to their cost this doesn’t necessarily translate into lower borrowing charges.

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Over recent months we’ve seen a number of credit card providers tweak their offerings. For many existing customers this has meant an increase in the rate of interest they are charged. It’s also resulted in less competitive deals for new customers.

Egg and Nationwide are among the credit card providers to have announced increases to their standard rates of interest, while Virgin and Barclaycard have reduced the length of the interest free periods on deals for new customers.

However, there is still competition in the market with providers seeking to attract new custom and Abbey is one of them.

What is the deal?

The new Abbey Credit Card offers 0% on balance transfers for 15 months with a balance transfer fee of 3%. This places it alongside the HSBC Credit Card, which is only available to HSBC current account customers, and the Virgin Credit Card as a market-leader - both of these cards offer the same 0% period for balance transfers at 15 months but with slightly lower balance transfer fees of 2.9% and 2.98% respectively.

Where Abbey is looking to take the upper hand is with the standard annual percentage rate. Once the interest-free period ends, Abbey will charge a lower typical annual percentage rate (APR) than HSBC and Virgin. The Abbey Credit Card charges a typical APR of 15.9% compared with 16.6% for Virgin and 16.9% for HSBC.

This offer comes along at a good time for many credit card customers who are reeling as their existing providers alter their rates.

What has been happening to rates?

Credit card companies have been hiking rates because, there are fears that with unemployment levels rising, more customers may struggle to pay back the money they owe.

One of the most high profile companies to adjust its rates is Nationwide Building Society, which will increase the interest rate on all its credit cards from May 6. Those with the Nationwide Gold Card will see their purchase rate increase from 15.9% to 16.9% annually, while customers with the Classic Card will see their rate rise 17.9% to 19.9%.

Nationwide has also adjusted the terms of use of its debit and credit cards abroad – previously one of the company’s biggest selling points as it did not charge customers who use their cards for transactions or withdrawals overseas. However, those with a Nationwide credit card will be charged 0.84% from May 6 for every transaction undertaken outside Europe, while a similar fee will apply to debit card use from June 1. Both fees will increase to 1% in July.

Nationwide isn’t the only provider adjusting its terms, however.

There have also been changes to some of the market-leading propositions available to new customers. Virgin recently reduced its 0% balance transfer term from 16 to 15 months; and American Express, while still having the best cashback card available, is now offering a less generous cashback incentive. It is paying 5% cashback in the first three months, but while this used to be available up to a maximum spend of £4,000 during that time, this has been halved to £2,000.

However, credit card companies are now required, under a new code of conduct, to give customers 30 days notice if they plan to change their terms and conditions. This gives cardholders the chance to shop around for a better deal.

So what are the best cards available?

If you have an outstanding debt on a credit card which you are currently being charged interest on, look to take advantage of one of the 0% balance transfer offers available.

The three mentioned above from Abbey, Virgin and HSBC are the longest, but there are others worth considering. For example, if you’re an existing Royal Bank of Scotland (RBS) or NatWest customer, you can take advantage of the RBS Platinum and NatWest Platinum cards both of which offer a 0% period of 13 months with 3% balance transfer fees and typical rates of 16.9%.

However, do be aware that if you move your balance to a 0% balance transfer card you should not continue your spending. Most of these cards offer 0% purchase periods that are significantly shorter than their 0% balance transfer offers. As a result if you spend on these cards you’ll build up interest on your purchases as soon as the introductory offer ends and until you pay off your original debt in full. This is known as negative payment hierarchy.

To avoid this you’ll need a card with an equal offer on purchases and balance transfers – the present market leaders are the Halifax and Bank of Scotland All in One Cards, both of which offer 0% for nine months on both balance transfers and purchases with 3% balance transfer fees and typical rates of 15.9%.

If you don’t trust yourself to move your balance around regularly and don’t think you will pay off your debt within a 0% period, then you may be better off with a low rate card. The Barclaycard Simplicity, for example, offers a rate of 6.8% on both balance transfers and purchases. This is a lifetime rate and there is no balance transfer fee.

Alternatively, if you are confident of paying off your balance in full each month you should make your credit card work for you with a cashback or rewards card that gives you something back every time you spend. Despite reducing its cashback terms, the American Express Cashback Card remains a market leader with 5% cashback for the first three months (up to a maximum spend of £2,000) then a standard cashback rate up to 1.5%.

To compare more credit card deals use our credit card comparison tool and check out our article “How to choose a credit card” to help find the right credit card for you.

Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.

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